I am, by my nature, a ‘nerdy quant guy’. To borrow Rick Snyder’s campaign idea, yes, I too am a nerd. I stare at numbers and look at stocks by comparing those numbers. Yet, I’m also aware of the behavioral aspect of investing, as some people will trade on ‘social’ issues, ‘feelings’ or ‘confidence’. There are those who boycott tobacco or casino stocks, as they are ‘sin’ stocks. It used to be that ‘social responsible investing’ (SRI) was ‘faith-based’ investing, but political correctness and marketing kicked in and ‘faith-based’ was used less frequently. I’m not the greatest fan of SRI; as some studies have found that some underperform and charge higher fees. The question must be asked, ‘you might be picking socially responsible stocks, but is it socially responsible to the investor if you’re charging higher fees and providing lower returns’?

The idea of SRI can be applied to almost any sector, if you want to be picky. “I don’t like Energy as they have oil spills; nor Financials with Wall Street vs. Main Street; nor Materials as they take stuff from the earth; nor Health due to the political theatre; nor Industrials as they use Materials; nor InfoTech as it is less American; nor Telecom as the cell towers block my view; nor Utilities as they have nuclear”. So, I try not to look at stocks from the ‘social’ aspect. It’s certainly important for some, but if I was to be super picky, I could probably find a reason to short every stock for some reason or another – even if their biggest ‘sin’ was just participating in the same industry.

Ann Arbor is a wonderful town, and sometimes I wonder if I should talk about the events in my city. For a long time I never spoke about Borders as I did not want to talk badly about anything local. Looking back, I regret that decision. Sometimes, what happens locally can impact others outside of the city.

Using a data set on the investments made by a large number of retail investors from 1991 to 1996, we find that households exhibit a strong preference for local investment - the average household invests nearly a third of their portfolio in firms headquartered within 250 miles. We test whether this locality bias is driven by information or by simple familiarity. The average household generates an additional return of 3.7% per year from its local holdings relative to its non-local holdings, suggesting local investors are able to exploit local knowledge.

When I was a kid, my "Isi" (Finnish for daddy) would bring me to the train tracks, and we'd watch the trains go by. As the train would pass that night, I would say to him, "Nuna (juna) meni mukkumaan (nukkumaan)." (Finnish for the 'train went to sleep'). I was fascinated by trains. Soo, Ontario had the wonderful Agawa Canyon Tour Train, and I loved watching it go by. When I was older, I was able to take a national trip and visit some of the famous train hotels -- the Fairmont Hotels. Now, I still watch the trains and that childhood train fascination is still in me.

Ann Arbor has found itself in somewhat of a controversy, as there are discussions to cut police and fire department personnel, and yet decisions are being made to build a $100 million “transit center”/train station/parking lot. Cut public safety, build a parking lot. Cut the fire department and build a train station. Cut the police department and build a transit center. Opponents of the “transit center” argue that it isn’t much more than a glorified parking lot for hospital employees. Others point out that a new transit center will bring more people into Ann Arbor from Detroit and Chicago, and it will function as a bike/bus/train station. Although Ann Arbor already has a train station (the busiest station in Michigan), and a recent Ann Arbor news article confirms, “Stations are already built in Detroit, Dearborn and Ann Arbor”; they still want to build a new station a few blocks to the east of the existing station. With the new intermodal station, officials hope to encourage more people to visit this top 10 city. The situation is pitting the folks who believe ‘It’s an expensive parking lot for employees, located next to a river, replacing parkland’ against those who believe ‘It’s an intermodal station and it will bring people to Ann Arbor and Detroit’.

I asked Amtrak for a comment, and they had this to say:

“First, the location of stations starts as a local decision. In this case, we have outgrown the current building and the amount of parking is insufficient on our side of the tracks, inconvenient on the other side.

We are supportive of the city’s efforts to improve our facilities, especially as an intermodal station where passengers can be exchanged among modes.” -- Amtrak Media Relations

In an article by Ryan Stanton at the Ann Arbor news, it was noted that city officials viewed the allocated federal environmental money as seed money.

“Hieftje called that a "game changer." City officials consider the $2.8 million as seed money, and they remain confident the federal government is interested in funding future phases of the transit center project”

Living in Ann Arbor, I know something that many don’t know about Ann Arbor – and even many locals don’t know about it. Ann Arbor is approaching the 1 year anniversary of an unsolved pollution spill. This spill happened 1 week before the much bigger Enbridge spill (NYSE:ENB) near Snyder's home town of Battle Creek, Michigan. Although different in size, both spills are still unsolved.

Going back to that Environmental Site Assessment Report for the transit center, it lists various spills near the proposed train station, but it does not cover a pollution spill that I witnessed on the Huron River in July 2010.

"We Are Moving Beyond This Incident"

Pollution covers the width of the Huron River

From my vantage point, I saw a river covered for hours. Local officials found the spot where the pollutant went from the outfall to the river, booms were placed to contain it, multiple agencies worked on it and, and multiple agencies were notified of it. (A map and a timeline are available here) I tried getting local officials to solve that spill (doesn't the Clean Water Act and EPCRA help us with this?), but eventually my quest ended when I got this response:

“The State of Michigan MI-DNRE as well as the Michigan State Police Emergency Management-Homeland Security Division have all been included in the progress of this incident. No entity has found any significant impact or known cause for the release of what has been clearly been identified (by more than one source) as a petroleum based product. “

How does this relate to Norfolk Southern?

Pollution flowing under a train track along the Huron River, Ann Arbor, Michigan. This spill is still unsolved.

Norfolk Southern (NYSE:NSC) has the right of way on the train track. When passenger trains come by, the NSC freight trains have the right of way. (view map of NSC tracks here). The train track is also used by Amtrak for the passenger trains (view map of Amtrak tracks here) To be crystal clear, NSC is not responsible for the spill, nor are they involved with the new passenger station.

I asked NSC media relations for a comment, and they responded:

NSC is a freight railroad. We do not operate passenger service.”

“I don't know why you insist on drawing NS into this, but to be clear we have absolutely no involvement with the construction of a new passenger station in Ann Arbor, nor do we have any involvement with local government decisions pertaining to emergency responders.“ -- NSC Media Relations

Why did I contact NSC about the track? They own the track.

Yes, they are still the track owner." -- Media Relations Manager, Amtrak Government Affairs

Ann Arbor is in the process of reducing a fire department and a police department, and so Ann Arbor is planning on reducing public safety personnel, and building a $43-$100 million train station/transit station/parking lot. Keeping public safety in mind, an unsolved pollution spill occurred in the river and it is not noted on the current environmental report for the new train station. NSC would not use the passenger train station, but they would use the tracks that go past it, and one would hope that they might have some social/political power to have some say in that new station. Also, in post 911, train stations are being looked at more carefully for security and safety. This station will be built next to a huge parking lot, next to a huge hospital, and near the Huron River. From the perspective of public safety and security, does this sound like a good idea? Do the current plans have ideas in place that reflect safety and security? You see, NSC need not get involved as it isn’t their train station, but they do have the right of way on the tracks – and as such, they may want to get involved.

Although NSC states that they have no involvement with the proposed new passenger train station in Ann Arbor, I’d like to note the following item of interest in the Ann Arbor news.

Chief among the issues is how commuter and passenger trains will share rail lines with the freight train companies that own them.”

“Funding is still needed for an estimated $25 million to $30 million in remaining “smaller” capital improvement projects, such as signs and sidetracks. But complicating the situation are discussions between MDOT and Norfolk-Southern about MODT purchasing the tracks between Dearborn and Kalamazoo. If that sale goes through, some of the planned capital improvement projects might be unnecessary, so officials don’t want to start spending unnecessarily. “

Ann Arbor’s Dioxane Plume.

“3D view of dioxane plumes based on Pall's 2010 plume maps. Plus estimated area of 1-84 ppb (yellow outline). Plus original and expanded Well Prohibition Zones (red and pink outlines)“

Does Ann Arbor have any other pollution issues? Yes. Although I focused in on a smaller unsolved spill, Ann Arbor has a much larger ‘spill’. There is a 1,4 dioxane plume that has entered the groundwater and residents are clearly upset with the cleanup effort.

In the 1960s, Gelman Sciences – a firm founded by Charles Gelman that manufactured medical filters and other microfiltration products – began pumping industrial wastewater into holding lagoons behind its factory at 600 Wagner Road in Scio Township. Some of those wastewater releases were permitted by the state. Contaminated groundwater leeched into underground aquifers, and by 1985, tests showed some local residential wells were contaminated with 1,4-dioxane, a substance that’s considered a carcinogen.”

First, it was not just a spill. The Pall/Gelman 1,4-dioxane groundwater contamination happened over a 20 year period from 1966-1986 during which Gelman Sciences Inc. used a reported 800,000 pounds of pure dioxane. GSI allowed an undetermined amount of the dioxane to get into groundwater via unlined treatment ponds, spray irrigation, etc. ... creating a spreading plume that is now over 3 miles long and a mile wide, contaminating over a hundred drinking water wells including an municipal supply well that supplied 5% of the City of Ann Arbor's water.

Now in spite of evidence that some of the dioxane may be heading to where Ann Arbor gets 80-85% of its water, the company, owned by Pall Corp. since 1997, has cut back on its monitoring and cleanup efforts and is moving to let the remaining dioxane spread unremediated. Pall has even curtailed its monthly data reporting to the State.”

In fiscal years 2008, 2009 and 2010, the Company increased its previously established environmental reserve primarily related to matters in Pinellas Park, Florida and Ann Arbor, Michigan."

“The Company has environmental matters, discussed below, at the following four U.S. sites: Ann Arbor, Michigan; Pinellas Park, Florida; Glen Cove, New York and Hauppauge, New York. The Company s balance sheet at July 31, 2010 contains environmental liabilities of $12,803, which relate to the items discussed below. In the opinion of Company management, the Company is in substantial compliance with applicable environmental laws and regulatory orders and its accruals for environmental remediation are adequate at this time.”

Going back to Rayle, he added:

The negotiations mentioned in the 10-K are over. On March 8, 2011, after 20+ months of secret negotiations, the DEQ (newly re-split off from the DNRE by Gov Snyder) approved Pall's previously rejected plan to expand the Well Prohibition Zone and let more dioxane spread without cleanup. This in spite of an August 2010 US-EPA ruling that 1,4-dioxane was more dangerous than previously thought... that should result in tightening Michigan's current 85ppb dioxane cleanup standard back to about 4 ppb, or about what it was up until 1995.”

Pall Corporation (NYSE:PLL), a global leader in filtration, separation and purification, has been named a 2011 member company of the FTSE4Good Index, an investment index designed to objectively measure the management performance of companies that meet globally recognized corporate responsibility standards.“

“Today, institutional investors around the world are increasingly focused on considering the environmental, social and governance (ESG) practices of the companies they invest in,”

“Together we are implementing technologies that purify and conserve water”

“Our collective efforts are enabling a greener, more sustainable future,"

-PLL Press Release, May 11, 2011

Would the dioxane residents agree with the environmental responsibility? As for corporate governance issues -- the CEO, CFO, COO and other directors of PLL have been selling shares in the past year. Each time I have a student group pitch a stock and they talk about corporate governance, I ask this question: Are the insiders selling the stock and what do you think of that?

Documents about the Dioxone Plume located here. Videos are here. Maps are here.

This Kai guy is bugging me. Stop talking about pollution! Who cares?

Ok, so I am a quant guy and I look at numbers. Although these local events concern me, and I believe more could be done to protect our water supply, I’ll look at stocks with my quant opinion. Using AAII’s Stock Investor Pro software, I made a quant screen.

Thumbs down to Norfolk Southern (NYSE:NSC). I’m concerned about the institutional selling, the high debt/equity, higher PE and price/book (compared to UHAL), and the negative price momentum (1 year vs. UHAL).

Thumbs up to Amerco Inc. (NASDAQ:UHAL). Although the stock is not a railroad, it falls within the Road and Rail industry and so it becomes a competitor to NSC. Unlike NSC, I see less institutional selling, lower debt/equity, lower PE, lower price/book, and positive price momentum.

Thumbs down to Pall Corporation (NYSE:PLL). Thumbs up to Kadant Corporation (NYSE:KAI)

Thumbs up to KAI? Seriously, Kadant’s ticker is KAI (NYSE:KAI). I love the ticker, but that’s not why I like the stock. Both PLL and KAI are within the GICS classification of “industrial machinery”. KAI has a PE of 18, price/book of 1.8, debt/equity of 8 and no insider selling. PLL has: a higher PE of 24; a higher price/book of 4.8; a higher debt/equity of 48, and although the stock has been rising, there was some insider selling. (numbers from Yahoo Finance)

Thumbs up to UHAL and KAI. Thumbs down to NSC and PLL. Thumbs up to mass transit and trains. Thumbs up to whatever government agency can solve the unsolved pollution spill in Ann Arbor, Michigan. Thumbs up to whoever can clean the dioxane mess. Erin Brockovich, are you there? Ann Arbor has an unsolved pollution spill and a Dioxane plume. Erin, remember Chromium 6? According to the Environmental Working Group, it was detected in Ann Arbor’s drinking water. Please help -- hopefully someone out there cares.

Or do we just ignore pollution and move beyond this incident?

I got suspended. I made a mistake and deserve and accept the punishment that i got. I think the school handled it pretty well. I would also like to point out that we arent criminals or future menaces to society, as some commenters say, just people that made a mistake and are being punished for it.

I wish many others would show leadership like that when they make mistakes. Yes, a mistake was made, but that person is showing honesty, humbleness and responsibility. Give that student a job. The student could have easily said, "Let's move beyond this incident", and offered no apology, or explanation on how to fix or solve the problem at hand. In response to that student, I said this:

i believe in forgiveness. and what you said is perhaps one of the best things that i've heard anyone say on this board. say sorry, accept the consequences, learn from it, move on and be better than that which you were. push yourself and others to live a better life. honesty and humbleness are admirable qualities. (but if i was to be cynical... and you go into politics... they rarely say they're sorry or admit any wrongdoing)

Documents about the Huron River spill here and here. Photos are here. A map is here.

NOTE: I was unable to get a comment from Pall Corporation, or the Huron River Watershed Council (a "Coalition of governments, businesses, and volunteers dedicated to protecting, sustaining, and rehabilitating the Huron River system.)"

Kai Petainen is a huge fan of the University of Michigan, the state of Michigan, and Ann Arbor – but sometimes difficult subjects must be spoken about in our states and in our towns. Kai does not know who caused the Huron River Spill, but he wants to know how it happened. Kai's views on the market, pollution, and stocks are his alone, and do not reflect the views of the Ross School of Business or the University of Michigan. Kai holds: UHAL and KAI in his Industrial portfolio. Kai bought NSC @ $21 in Mar. 2004 for his Industrial portfolio, but then sold it at $67 in Sep. 2008. Kai is a MFolio master at Marketocracy and is featured in Matthew Schifrin’s book, The Warren Buffetts Next Door. Kai may have a behavioral bias for stocks in this article, as he's passionate about keeping our water clean and solving local pollution problems.